Erratic Monsoon And Monetary Policies Impact India’s Economy In Q2 FY25: Report

The quarterly analysis by Pantomath Group, Asit C Mehta Investment Intermediates (ACMIIL) Market Kaleidoscope for Q2 FY25, highlights key economic factors affecting India, from unpredictable monsoon patterns to the Reserve Bank of India’s (RBI) cautious approach to monetary policy. This report delves into India's growth trajectory and fiscal performance while assessing how external economic forces shape market trends.

The report draws attention to the erratic monsoon, which began with a stall in June and later brought above-average rainfall in July, August, and September. While this pattern initially seemed beneficial for the economy, the prolonged rainfall has raised concerns, especially for the Kharif season's crop yields, including rice, pulses, and horticulture. According to ACMIIL, this skewed rainfall could disrupt agricultural productivity, leading to inflationary pressure, particularly in the food sector.

On the monetary front, the RBI has maintained a steady stance, holding the repo rate at 6.5 per cent for the tenth consecutive session in October. The bank's neutral approach, however, opens the door for potential rate cuts if the economy shows signs of a slowdown. The RBI remains optimistic about the country's overall growth potential, projecting a 7.2 per cent growth rate for FY25, although concerns linger over inflation and the global economic environment. This cautious optimism reflects in the RBI’s unchanged rates for the standing deposit and marginal standing facility, aimed at balancing liquidity and growth.

ACMIIL’s report also captures the impact of India's robust policy measures and investments in manufacturing, suggesting that these could boost growth in the mid to long term. For instance, Fitch Ratings recently upgraded India’s growth forecast for FY25 from 7 per cent to 7.2 per cent, crediting sustained consumer confidence and an uptick in investments. Additionally, ratings agencies such as the International Monetary Fund (IMF), Asian Development Bank (ADB), and World Bank have elevated their outlook for India, expecting private consumption and industrial output to keep growth momentum steady.

The domestic market outlook for Q2 FY25 reflects the effects of a volatile global environment, with sectors like automotive, real estate, and telecom displaying resilience. According to ACMIIL, Indian equity markets rallied after the 2024 Lok Sabha elections, benefiting from positive sentiment around policy continuity under the Modi administration. Despite a moderation in GDP growth to 6.7 per cent during Q1 FY25, the BJP-led government’s focus on infrastructure, electric mobility, and digital privacy policies provides a stable foundation for sustained economic expansion. The analysis highlights the government’s continued push toward infrastructure development, a sector predicted to receive Rs 14 lakh crore in debt financing from 2024 to 2026.

In a global context, inflationary trends and fluctuating energy costs have pressured emerging markets like India. However, foreign investments in the primary market have bolstered India’s market standing, especially as investors shift away from higher valuations in secondary markets. This trend aligns with India’s record IPO activity in H1 FY25, where IPO fundraising nearly doubled from the previous year, raising Rs 51,365 crore. With a strong IPO pipeline, the report forecasts sustained momentum in the primary market for the rest of FY25.

ACMIIL’s Market Kaleidoscope sheds light on India’s economic resilience, though it notes significant challenges ahead. The combination of internal structural reforms, a steady policy environment, and supportive global sentiment positions India on a path of growth—contingent, however, on managing inflation and sustaining agricultural productivity amid volatile weather patterns. The upcoming festive season and global economic shifts will be crucial indicators for India’s trajectory in the remainder of FY25.